Reimbursement Trends for Medical Devices in Japan

In the past, medical device companies have focused on obtaining regulatory clearance for commercialization in Japan. Gaining reimbursement, however, is more critical for the bottom line. No reimbursement means no business in Japan, with no supplemental insurance allowed to fill the gap. Use of a non-reimbursed device means no universal healthcare coverage, with all payment all coming out of pocket.

A database was developed to analyze reimbursement trends in Japan. The data was extracted from the Ministry of Health, Labour, and Welfare (MHLW) webpage. Central Social Health Insurance Council (Chuikyo), the MHLW council that establishes all the codes, coverages, and prices for the universal healthcare insurance system—essentially the CMS of Japan—evaluated 138 requests for a new designation of Specially Reimbursed Medical Device (SRMD) between October 31, 2012 (for January 1, 2013, release), to November 22, 2017 (for January 1, 2018, release). While the AMA establishes physician service fees in the United States, its Japanese counterpart, the Japan Medical Association (JMA) does not have that leverage. The association does have a seat on Chuikyo, among the Japanese Pharmaceutical Association and the Japan Trade Union Confederation. It can also request a new code, coverage, and price for physician service and hospital fees but not for drugs or medical devices. The product approval holder requests that Chuikyo establish a new code, coverage, and price for a new medical device that is different from what is already reimbursed in terms of product functionality (C1 request) or being a new therapy with no physician service fee established as well (C2 request). Table 1 shows the breakdown of C1 and C2 requests during the period.

Table 1: New reimbursement evaluated between October 31, 2012, to November 22, 2017

Requests

Products

Success rate

Corrected Success rate

C1

82

119

118/119

99 %

118/119

99%

C2

56

80

43/80

54 %

43/51

84 %

Total

138

199

161/199

81 %

161/170

95 %

During this period, Chuikyo did not grant SRMD designation to 38 products. Of those, 28 were reusable devices or capital equipment, which do not fit the definition for SRMD designation. If those denials are excluded for C2 requests, the success rate improves from 54% to 83%. Still, nine disposable or implantable devices were denied SRMD designation. Somewhat surprisingly, Atricure’s Atriclip requested C1 but was classified as A2 by Chuikyo, meaning the cost of the devices is included in the physician service fee. The new physician fee for the procedure using Atriclip will be available starting April 1, 2018. Until then, any use of Atriclip will not be reimbursed by the system. If used, patients will need to pay for the whole procedure, including hospital stay, out of pocket. This determination is very rare for a Class IV implantable cardiovascular device. Unfortunately, the Chuikyo meeting minutes did not describe any discussion on this matter. The assumption is that the Atriclip is not replacing the valve, but rather only clipping the natural valve, thus it is not a prosthesis, which is eligible for SRDM designation. No surgical device used by a cardiac surgeon only for modification has been designated as SRDM in the past. Medtronic’s Interstim II was denied in 2014 but was granted SRMD designation in 2017 for a newer generation with an expanded indication.

Most recently, Halyard’s mini-BAL sampling catheter was determined to be an A2 device despite being a disposable single-use catheter. What is troublesome is that this device was also designated as an unmet clinical need device by MHLW, so it should have had a higher probability of success in gaining favorable reimbursement. Could it be that the diagnostic yield of this catheter was similar to the BAL with bronchoscope? Again, the Chuikyo meeting minutes did not disclose anything in particular for this reason.

Interestingly, iStent made a C2 request but did not request SRMD designation. Instead, it requested the A2 route despite being a single-use implant. Six more products requested the C2 for A2 route, as well. Five products were capital equipment and software, which is appropriate per definition. It seems that companies are requesting C2 for devices outside the scope of SRMD designation to put in on the table for Chuikyo to consider on its biannual reimbursement code revision, coming up April 1, 2018..

Comparing year to year, as in Table 2, the number of products granted reimbursement fluctuates each year, while the overall success rate is stable, above 80% when excluding capital equipment and reusable devices. The only exception was in 2014, when four disposable or implantable devices did not get SRMD designation. The lead and introducer kit of Medtronic’s Interstim II did not get reimbursement, but the main implantable generator did. The reimbursement price for Interstim II itself was 964,000 Yen ($9,600.00), which was probably high enough to absorb the cost of the lead and its introducer. Similarly, the disposable kit for Zoll’s Thermogard catheter did not get SRMD designation. However, the Thermogard catheter only got reimbursed for 27,999 Yen ($300.00), which was only 39% of the requested price, making it a challenge to absorb the cost of its accessories. These indicate that it is hard to gain reimbursement for accessories. One of the possible reasons for the low value of the Thermogard catheter might be that the device was approved as a supplemental therapy to the present therapy (Antipyretic drug and blanket) and not as a game-changer. Hyperthermia use was not indicated either. In 2016, Zoll got more favorable reimbursement for its later-generation Quattro and ICY catheter, which gained approval with the expanded indication.

Hoya’s Capsular Tension Ring was classified as A2, with only 80% of the requested price being reimbursed as physician service fee. This technology was not reasonably valued or the price requested was not realistic compared to market price. The only possible reason for the A2 classification is that historically, the Intraocular lens has been A2. Lastly, a custom-made bone cutting and drilling guide for the upper extremity by Nakashima Medical was classified as A2 and given only 30% of the price requested as physician service fee. One of the probable issues was that this device gained regulatory approval as a me-too device without any clinical data to substantiate its benefit and value. Also, the necessity of a custom-made device for this application is limited, thus the company should have applied as an orphan device. These factors might have changed the outcome. As a note, the custom-made plate by Nakashima gained SRMD designation on July 1, 2014. With an A2 device, the manufacturer has to negotiate the price with the hospital, just like in the United States. The hospital will naturally want to lower that price as much as possible to save its physician service fee allocation.

Table 2: Year-to-year trend

Requests

Products

Success rate

Corrected Success rate

2017

C1

9

9

8/9

89 %

8/9

89 %

C2

6

7

4/7

57 %

4/5

80 %

Total

15

16

12/16

75 %

12/14

86 %

2016

C1

15

28

28/28

100 %

28/28

100 %

C2

16

26

20/26

77 %

16/18

89 %

Total

31

54

48/54

89 %

44/46

96 %

2015

C1

5

8

8/8

100 %

8/8

100 %

C2

4

7

3/7

43 %

3/3

100 %

Total

9

15

11/15

73%

11/11

100 %

2014

C1

23

38

38/38

100 %

38/38

100%

C2

14

20

9/20

45 %

9/13

69 %

Total

37

58

47/58

81 %

47/52

90 %

2013

C1

29

35

35/35

100 %

35/35

100 %

C2

15

19

11/19

58 %

11/11

100 %

Total

44

54

46/54

85 %

46/46

100 %

Will the success rate for gaining a SRDM designation change depend on the risk classification of the device? Table 3 shows that requesting C2 for a Class II device has a smaller chance of success than for requesting other classifications. Besides the mini-BAL catheter, the other two products to receive C2 were a tongue pressure measurement probe and tube by JMS of Japan that connects to a dedicated instrument. These are accessories of a diagnostic device, even though they are single-use disposables.

Table 3: Success rate per MHLW risk classification

Requests

Products

Success rate

Corrected Success rate

IV

Total

62

90

84/90

93 %

84/87

97 %

C1

44

64

63/64

98 %

63/64

98 %

C2

18

26

21/26

81 %

21/23

91 %

III

Total

54

82

66/82

80 %

66/69

96 %

C1

35

52

52/52

100 %

52/52

100 %

C2

19

30

14/30

47 %

14/17

82 %

II

Total

21

25

9/25

36 %

9/12

75 %

C1

3

3

3/3

100 %

3/3

100 %

C2

18

22

6/22

27 %

6/9

67 %

Biologic

C2

2

3

3/3

100 %

3/3

100 %

The analysis showed that devices in the anesthesiology, general, ophthalmic, and urology categories tend to have lower rates of success. The success rate did not change significantly between Japan- and foreign-made devices. The type of approval or clearance also did not seem to affect success. What was surprising is that even though the product was approved as a me-too device, meaning it is equivalent to what was already approved in Japan or certified by a notified body, the success rate was 82%. The success rate for C1 was 100%, meaning a device can get approval by claiming to be equivalent but then can request a new functional category for reimbursement. Interestingly, more than half of C1 devices were orthopedic devices. This suggests that orthopedic devices can gain approval as me-too devices and attempt to gain a new reimbursement if a compelling story can be made.

So far, data have shown that disposable diagnostic devices other than those for cardiology use; those with limited indication with no value added to present therapy; those considered accessories to implantables; those with a C2 request for Class II (MHLW) device; and devices only used in anesthesiology, general, ophthalmic, and urology specialties have a lower chance of earning SRDM designation.

Now, let us focus on how fast SRDM is designated after regulatory clearance, as well as the difference versus U.S. list price and foreign average price (average list price in U.S., UK, France, Germany, Australia, and New Zealand), which are essential for commercialization. This analysis will use devices granted SRDM designation.

Table 4 shows that for those granted a new SRDM designation, cardiovascular and orthopedic devices gained reimbursement in about 200 days after regulatory clearance, while neurology devices took about 390 days. The challenge with that timeline is that the data does not provide information about when the request was submitted to the MHLW. It is likely that cardiovascular and orthopedic companies have simply done this more efficiently compared with others. However, in term of pricing, orthopedic devices are reimbursed at about half of U.S. list price. Cardiovascular devices are reimbursed on average about 85% of U.S. list price, followed by neurology devices, which are about 73% of U.S. list price. From this analysis, the days of higher reimbursement in Japan than in the United States are over. Of the 15 devices reimbursed at equal or higher than U.S. list price, 10 were cardiovascular devices, but that was only up to 2016. In 2017, The highest was 84% of U.S. list price, and the overall average was 64.6%.

Table 4: Statistics for SRDM-designated devices

N

Days to reimbursement

% of request price

% of US list price

% of FAP

Overall

Total

161

273

81.6 %

68.4% (n=100)

86.5% (n=124)

C1

118

237

81.7%

64.8% (n=75)

83.0% (n=95)

C2

43

373

81.3%

79.0% (n=25)

97.8% (n=29)

Cardiovascular

Total

53

204

85.7%

85.6% (n=31)

97.4% (n=40)

C1

38

208

87.6%

89.9% (n=21)

96.0% (n=29)

C2

15

192

80.9%

76.5% (n=10)

101.2% (n=11)

Neurology

Total

19

391

80.6%

72.7% (n=11)

77.8% (n=16)

C1

15

419

82.4% (n=14)

73.1% (n=8)

79.4% (n=13)

C2

4

289

73.9%

71.7% (n=3)

71.0% (n=3)

Orthopedics

Total

50

199

76.1%

50.0% (n=37)

80.6% (n=41)

C1

46

190

77.5%

47.7% (n=33)

79.6% (n=37)

C2

4

298

59.6%

69.1%

89.3%

Anesthesiology

C2

1

196

83.0%

126.7%

80.9%

Clinical Chemistry

C1

2

239

84.2%

NA

87.6% (n=1)

Dental

C2

4

1638

80.5%

55.7% (n=1)

49.8% (n=1)

ENT

Total

4

349

95.0%

102.3% (n=2)

124.6% (n=4)

Gastroenterology

Total

3

513

93.5%

NA

110.5% (n=2)

General

Total

13

251

85.3%

55.5% (n=10)

61.5% (n=10)

C1

10

262

81.5%

55.5%

61.5%

C2

3

216

98.0%

NA

NA

OBGY

C1

1

206

53.4%

98.9%

63.8%

Ophthalmic

Total

0

NA

NA

NA

NA

Physical

Total

0

NA

NA

NA

NA

Radiology

Total

0

NA

NA

NA

NA

Surgery

Total

8

195

77.5%

65.6% (n=3)

91.8% (n=4)

Urology

C2

3

214

81.7%

98.5%

98.1%

The data suggest that reimbursement will be granted in about a year after regulatory clearance if timely prepared. However, the reimbursement price is typically around 70% of U.S. list price. Orthopedics are reimbursed at about half of U.S. list price, and cardiovascular devices are about 85%. The trend is to grant about 80% of the requested price.

Lastly, is the path to reimbursement in Japan easier or shorter than in the United States? It is hard to make this comparison, as the U.S. reimbursement system is more complicated, with multiple payers. However, there are cases in which Japan has granted full reimbursement before the United States. One example is Micra by Medtronic. Micra was granted full reimbursement in Japan on September 1, 2017, 199 days after approval in Japan. Meanwhile, it is not yet fully reimbursed by CMS. Novacure also gained reimbursement in Japan on December 1, 2017, 982 days after approval but still faster than in the United States. Further analysis is necessary once a better methodology to compare U.S. and Japan reimbursement is decided. However, these two cases suggest that it might be easier and faster to gain reimbursement in Japan than in the United States.

In conclusion, with the regulatory review speed by Japan’s Pharmaceuticals and Medical Devices Agency (PMDA) becoming competitive with FDA for PMA devices and the time to reimbursement being about a year after regulatory clearance with 80% of U.S. list price, Japan might be the best market, after the United States, to enter as an international market for many new companies. For 510(k) devices, the speed of reimbursement will be the same, although the speed to regulatory clearance remains a challenge. How soon a U.S. manufacturer submits the regulatory submission to PMDA is still the most substantial gap in term of commercialization speed between the two countries. This analysis shows that when it comes to companies’ strategy in Japan, the sooner they act, the better.